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HMRC report on reconciliation issues denies systemic RTI failings

September 26, 2013


HMRC has comprehensively rejected any suggestion that HMRC’s own RTI systems are responsible for the PAYE reconciliation issues reported by employers. In a report issued today, HMRC has concluded that there was no evidence in the cases they examined that HMRC’s RTI systems had failed to allocate correctly employer PAYE and NICs liabilities and payments. As reported by in August, HMRC set up a special group to investigate cases where there was a discrepancy between what they said was due from employers and what the employer thought was due, in response to reconciliation issues raised by employers.

These cases (investigated between the end of July and September) were referred by the Chartered Institute of Payroll Professionals, by software developers and through HMRC’s usual disputed charges process.

The report concedes more detailed knowledge among its call centre staff and employers about “how the employer charge is created” is needed.  HMRC is planning to release "enhanced" information on how “the employer charge” is calculated "shortly".  A number of issues which could have indicated an underlying HMRC IT fault were investigated, and HMRC is satisfied that none of the issues are caused by a fault in the way their IT systems “calculate” employer charges, but are related to other problems; for example the way payments to employees on or after leaving are treated by employers.

The report identified five main areas which caused reconciliation problems:

  • miscellaneous employer error
  • Employer Payment Summary returns
  • payments to leavers
  • timing of updates to the Business Tax dashboard/the View Account facility
  • issues relating to returns for Construction Industry Schemes

In addition to these key causes of discrepancies, the report mentioned that transitional issues with RTI had caused duplicate employments to be created, which in turn had caused the amount of employer charge to be overstated.  There was also an issue whereby "A small number of submitted FPS’s [were] not being passed to the accounting system in a timely manner resulting in no charge being created, or an understated charge."

Commenting on the issue of delays in processing FPS information, the report said that they had encountered "a small proportion of cases" where the delay had resulted in an understated charge or no charge being created on an employer’s account:

This has meant that the employer can’t see a charge on the Business Tax dashboard even though they know their submissions have reached us, and in some cases this has caused specified charges to be raised. We have identified and resolved this problem, and have now corrected the majority of cases affected. We are treating the remainder as high priority.

No detail on how HMRC have identified instances of this problem is given in the report, nor is there any indication of the number of schemes affected by this particular issue outside of the selected cases examined by the task group.

The report highlighted that the way payments are allocated to debts within HMRC’s accounting system, the information displayed to the employer in the Business Tax dashboard and misunderstanding over how the employer charge is calculated were recurring issues in several of the cases they reviewed. However, HMRC says that "There is no evidence that HMRC payment allocation rules are not working correctly", and that misallocations of payments they have investigated have been due to "misunderstanding" of how payment allocation works.

The report makes clear HMRC is satisfied that its RTI systems are working as expected and they are confident that the number of issues encountered by employers will fall as time goes on and get used to the routine of reporting in real time. It does acknowledge that operating PAYE without any error is not realistic. It advises "employers and payroll software providers check HMRC’s guidance or liaise with their payroll software provider where they are unsure" whether an employer charge is correct.

The report makes clear that the number of reconciliation error cases HMRC investigated "do not form a statistically valid sample" as they represent less than 1% of the PAYE schemes now reporting in real time. Although HMRC insisted that they had "reviewed sufficient cases to be confident that our findings are robust."

Its publication, which comes less than 3 weeks before the launch of HMRC’s GNS or RTI generic notification service on Monday 14 October, is significant because it makes clear - by implication - HMRC has concluded that the responsibility for PAYE reporting errors identified, with very limited exceptions, lies with employers, their agents or their payroll software.

The report refers throughout to HMRC’s “calculation of employer charges” for PAYE although, as HMRC themselves made clear prior to its introduction, the way PAYE is calculated has not changed under RTI. Employers and their agents continue to calculate their liability to PAYE and report this liability to HMRC, now in real time. HMRC does not routinely ‘calculate’ the employer’s liability to PAYE. HMRC has only to allocate the liability to PAYE to the employer’s account which employers calculate themselves using payroll software, and to which PAYE account the employer makes payment. HMRC only calculates a liability to PAYE where the employer fails to report RTI, requiring HMRC to estimate the liability by calculating a specified charge. The obligation to “calculate” PAYE remains with employers.

HMRC does however have to manage the running total of an employer's submissions to update movements in year to date (YTD) figures for its PAYE scheme for all the FPSs received in respect of each tax month. This requires HMRC to compare the YTD figure on its file at the fifth of the last month and rework this gross liability if an EPS or further FPSs have arrived by nineteenth of the month.

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